- Identify whether your contract contains a force majeure clause. Not all contracts have them. Relatedly, if there is such a clause, review your contract to determine the state whose law governs the interpretation and application of the contract.
- Does your force majeure clause cover COVID-19? Again, your first instinct is likely, “Of course!” But be aware: many clauses do not contemplate excusing nonperformance for diseases like COVID-19. Look for words or phrases like “pandemic,” “epidemic,” “public health emergency,” “outbreak of communicable disease,” or the like. Alternatively, some force majeure clauses apply in the event of government orders that make performance impossible. If none of the above work, look for catch-all phrases such as “acts of God” or “events beyond the control of a party.”
- Is COVID-19 the reason for nonperformance? The party seeking to excuse their nonperformance must tie the occurrence of COVID-19 and related restrictions to the reason that the party cannot perform its obligations. Be wary of contract counterparties attempting to delay or decline performance by taking advantage of COVID-19 without showing how it negatively affects their obligations. In some, but not all states, the fact that performance may be more difficult or expensive is not a valid excuse for failing to perform.
- How does the force majeure clause allocate risk? This item involves two distinct questions. First, does the contract allow one or both parties to take advantage of the force majeure clause? Second, what is the effect of the force majeure clause on the party seeking to take advantage of it? These clauses can merely alter the time for performance, or they can excuse it completely. In some circumstances, they can allow the party to terminate the agreement. The effect of the clause may counsel against invocation of force majeure. Which leads us to the final item on the checklist . . .
- What do you do? If you want to claim a force majeure, how will this affect your business? Termination of a contract could permanently damage a business relationship. We recommend beginning an honest dialogue with your contract counterparty about the necessity of delay or termination. Take steps to begin mitigating the impact of the force majeure event, such as seeking alternative locations to perform the contract, securing new suppliers, working remotely, and anything else that may minimize both parties’ losses. If your counterparty seeks to invoke force majeure, we recommend seeking substantiation and documentation of why they think the clause applies and how they believe it affects their ability to perform under the contract.
Insight
Practical Considerations Surrounding the Applicability of Force Majeure Clauses in the Midst of COVID-19
Practical Considerations Surrounding the Applicability of Force Majeure Clauses in the Midst of COVID-19
We are living in a time of uncertainty. Every day, you learn new ways in which your business is and will continue to be affected by COVID-19. As more and more restrictions, shutdowns, and governmental orders go into effect, one thing does become certain: your business does not operate in a vacuum. The new reality of COVID-19 may mean that you are unable to meet your contractual obligations. Conversely, it may mean that your contract counterparty cannot satisfy their obligations to you. It’s no one’s fault, but one party will take the blame - or will they? Force majeure clauses are commonly found in commercial contracts to allocate risk in situations where one or more parties’ contractual obligations are made impossible (or nearly impossible) by unforeseen events outside of the parties’ control. These are often referred to as “acts of God” clauses, although these phrases are not always synonymous. While it may seem obvious that COVID-19 would constitute a force majeure, this is not necessarily the case. Below is a checklist to help you make informed decisions with respect to enforcing or defending against the enforcement of a force majeure clause to excuse nonperformance under the contract.
Trending Articles
2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.
by Jennifer Verta
Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.
Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence
by Jennifer Verta
Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.
Discover The Best Lawyers in Spain 2025 Edition
by Jennifer Verta
Highlighting Spain’s leading legal professionals and rising talents.
Unveiling the 2025 Best Lawyers Editions in Brazil, Mexico, Portugal and South Africa
by Jennifer Verta
Best Lawyers celebrates the finest in law, reaffirming its commitment to the global legal community.
Presenting the 2025 Best Lawyers Editions in Chile, Colombia, Peru and Puerto Rico
by Jennifer Verta
Celebrating top legal professionals in South America and the Caribbean.
Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform
by Jennifer Verta
Explore how Prop 36 could shape California's sentencing laws and justice reform.
Tampa Appeals Court ‘Sends Clear Message,” Ensuring School Tax Referendum Stays on Ballot
by Gregory Sirico
Hillsborough County's tax referendum is back on the 2024 ballot, promising $177 million for schools and empowering residents to decide the future of education.
Find the Best Lawyers for Your Needs
by Jennifer Verta
Discover how Best Lawyers simplifies the attorney search process.
Paramount Hit With NY Class Action Lawsuit Over Mass Layoffs
by Gregory Sirico
Paramount Global faces a class action lawsuit for allegedly violating New York's WARN Act after laying off 300+ employees without proper notice in September.
The Human Cost
by Justin Smulison
2 new EU laws aim to reshape global business by enforcing ethical supply chains, focusing on human rights and sustainability
Introduction to Demand Generation for Law Firms
by Jennifer Verta
Learn the essentials of demand gen for law firms and how these strategies can drive client acquisition, retention, and long-term success.
Social Media for Law Firms: The Essential Beginner’s Guide to Digital Success
by Jennifer Verta
Maximize your law firm’s online impact with social media.
ERISA Reaches Its Turning Point
by Bryan Driscoll
ERISA litigation and the laws surrounding are rapidly changing, with companies fundamentally rewriting their business practices.
How Client Testimonials Fuel Client Acquisition for Law Firms
by Nancy Lippincott
Learn how client testimonials boost client acquisition for law firms. Enhance credibility, engage clients and stand out in a competitive legal market.
